In the final Autumn Statement before the 2015 General Election, the Chancellor announced his by now familiar mix of new reliefs and tweaks to existing reliefs, coupled with numerous other changes. There were also a few surprises and, significant, but probably not surprising, emphasis on anti-avoidance and evasion measures.

A new “diverted profits tax” of 25% was announced to counter the use of aggressive tax planning to avoid paying tax in the UK and the UK stamp duty land tax regime for residential properties also saw a major overhaul from midnight on 3 December.

But it was the announcement on devolving corporation tax varying powers to the Northern Ireland “NI” Assembly that proved most interesting with a positive message that with the political will of the parties this can be achieved before the current parliament is dissolved.

The Chancellor announced that the government recognises the strongly held arguments for devolving corporation tax rate-setting powers to NI and the goal of rebalancing the NI economy. In practical terms, further work by HMRC and HM Treasury has concluded that this proposal could be implemented provided that the NI Executive is “able to manage the financial implications”.

The bottom line is that “if the right conditions are met” the government will introduce legislation in this Parliament to do so. However, this will be subject to satisfactory progress on various issues in the cross-party talks which at the time of writing, it is understood, that both David Cameron and Enda Kenny will be in attendance. There are certainly interesting times ahead.

Let’s now take a look at the other key tax measures announced on Wednesday 3 December.

Stamp Duty Land Tax reform (SDLT) and related matters

Arguably the big ticket announcement was the wholesale reform of SDLT on residential property, which moves the regime away from a “slab tax” to a marginal rate regime. The announcement becomes less surprising perhaps given that the Scottish Government had already announced such a change in Scotland for next year.

From 4 December 2014, SDLT rates will only apply to the part of the property price that falls within each band. The effective rate of SDLT will rise steadily as property values increase. Transitional rules will allow buyers who have already exchanged on a home but not completed before 4 December 2014 to choose whether to pay SDLT under the existing or new rules.

The new rates are as follows:

• a transaction value up to £125,000 is charged at a rate of 0%;
• the portion between £125,001 and £250,000 is charged at a rate of 2%;
• the portion between £250,001 and £925,000 is charged at a rate of 5%; and
• the portion between £925,001 and £1,500,000 is charged at a rate of 10%.

To stimulate further investment in shared ownership, the government also intends to extend the scope of SDLT multiple dwellings relief so that “lease and leaseback” arrangements with housing associations on shared ownership properties also attract the relief.

From 1 April 2015, amendments will be also introduced to the regime which charges the Annual Tax on Enveloped Dwellings (ATED), this will include changes to the filing obligations and information requirements with respect to properties within the ATED that are eligible for a relief. In addition, the rates of ATED will be increased by 50% above inflation as follows:

• the charge on residential properties owned through a company and worth more than £2 million but less than £5 million will be £23,350;
• for properties worth more than £5 million but less than £10 million the charge will be £54,450;
• for properties worth more than £10 million but less than £20 million the charge will be £109,050; and
• for properties worth more than £20 million the charge will be £218,200.

Income Tax and National Insurance

For individuals, once again the Government has announced a higher personal allowance than expected: £10,600 for 2015/16, up from the £10,500 previously announced. Though this time around the increase has been coupled with a commensurate increase in the basic rate limit so that the benefit of this won’t just be enjoyed by basic rate taxpayers. No changes were announced to income rates though the blind person’s allowance, married couple’s allowance and the income limit will all increase in 2015–16 by amounts equivalent to the Retail Prices Index.

Following on from the 2013 announcement abolishing employer’s NIC on earnings paid up to the Upper Earnings Limit to any employee under the age of 21, this will be further extended from April 2016 to apprentices aged under 25. In addition, the annual £2,000 Employment Allowance for employer NICs will be extended to include care and support workers. This will come into effect from April 2015.

For those long term residents not domiciled in the UK and opting to be taxed on the remittance basis, a higher cost will attach to that privilege in future. The remittance basis charge for those resident 12 out of the previous 14 years increases from £50,000 to £60,000 and a new £90,000 charge will be payable by those who have been resident for at least 17 out of 20 years. The charge for those resident for 7 of the past 9 years will remain unchanged at £30,000. However, the government will consult on making the election to pay the remittance basis charge apply for a minimum of 3 years, so that non-domiciles are not easily able to arrange their tax affairs so as to only pay the charges occasionally.

At Budget 2014 the government launched a consultation on whether or not to restrict the personal allowance for non-residents. Whilst the government believes there is a strong rationale for doing this, it recognises it is a complex change for both employers and individuals who may be affected. The government will continue to discuss implementation of this change with stakeholders. Should the government decide to proceed; a more detailed consultation will be undertaken. No change will come into effect before April 2017.

Savings and Pensions

From April 2015, beneficiaries of individuals who die under the age of 75 with remaining uncrystallised or drawdown defined contribution pension funds, or with a joint life or guaranteed term annuity, will be able to receive any future payments from such policies tax free where no payments have been made to the beneficiary before 6 April 2015.

The tax rules will also be changed to allow joint life annuities to be paid to any beneficiary. Where the individual was over 75, the beneficiary will pay the marginal rate of income tax, or 45% if the funds are taken as a lump sum payment. Lump sum payments will be charged at the beneficiary’s marginal rate from 2016–17.

Following informal consultation since Budget 2014, the government has decided not to make changes to the age limit at which tax relief can be claimed on pension contributions. This will remain at age 75.

Continuing the Budget 2014 theme of measures to encourage savings, the Government plans to legislate to allow an additional ISA allowance for spouses or civil partners when an ISA saver dies, equal to the value of that saver’s ISA holdings on their date of death. From 6 April 2015, surviving spouses will be able to invest as much into their own ISA as their spouse used to have. The ISA allowance will rise to £15,240, also from that date.

Corporation Tax

Corporation tax measures contained a mix of enhancements to reliefs, new reliefs and anti-avoidance measures in certain areas.

The government intends to restrict the corporation tax relief a company may obtain for the acquisition of the reputation and customer relationships associated with a business (‘goodwill’) when the business is acquired from a related individual or partnership. This will affect acquisitions on or after 3 December 2014 and goes hand in hand with changes to the availability of entrepreneur’s relief on incorporation.

With effect from 10 December 2014, the requirements relating to the location of the ‘link company’ for consortium claims to group relief at section 133 Corporation Tax Act 2010 will be removed. This measure is likely to be as a direct result of a Court of Justice of the European Union decision earlier this year which found that the current UK’s consortium loss relief laws are not compatible with EU law. The UK provisions requiring that a “link company” must be established in the UK for companies to be entitled to consortium group relief was found to infringe on the freedom of establishment in Case C-80/12, Felixstowe Dock and Railway Company Ltd and Others v The Commissioners for HMRC.

Enhancements and changes to some of the creative sector reliefs also featured. The government will explore with industry whether to reduce the minimum UK expenditure for high-end TV relief from 25% to 10% and modernise the cultural test, to bring the relief in line with film tax relief. A new tax relief for the production of children’s television programmes will be introduced from 1 April 2015 though is likely to require EU approval. The relief will be available at a rate of 25% on qualifying production expenditure. The government will also consult early next year on the introduction of an orchestra tax relief from 1 April 2016.

Further enhancements were made to both the SME and large company research and development tax credits regime. The rate of the above the line credit will increase from 10% to 11% – this will no doubt increase take up of this regime before the 130% regime ends on 1 April 2016. And the rate of relied under the SME scheme will increase from 225% to 230%, from 1 April 2015. However, qualifying expenditure for R&D tax credits will be restricted from the same date so that the costs of materials incorporated in products that are sold are not eligible.

As part of the review of the legislation on corporate debt announced at Budget 2013, the government will repeal rules concerning loans made to UK companies by a connected company in a non-qualifying territory. A new rule will also be introduced to restrict the amount of banking profits that can be offset by carried-forward losses to 50%.

Capital Gains Tax (CGT)

Unexpected changes were announced to Entrepreneur’s Relief (ER). Firstly, the government will prevent individuals from claiming ER on disposals of the reputation and customer relationships associated with a business (‘goodwill’) when they transfer the business to a related close company, mainly on incorporation. This will affect transfers on or after 3 December 2014.

Secondly, gains which are eligible for ER, but which are instead deferred into investments which qualify for the Enterprise Investment Scheme (EIS) or Social Investment Tax Relief (SITR) will remain eligible for ER when the gain is realised. This will benefit qualifying gains on disposals that would be eligible for ER but are deferred into EIS or SITR on or after 3 December 2014. The Government also plans to introduce a digital calculator for CGT.

Inheritance Tax and Trusts

Many of the measures announced in this area are as a result of consultation after Budget 2014, though some proposals in the area of trusts have been abandoned.

• The government will not introduce a single settlement nil-rate band. New rules will however be developed to target avoidance through the use of multiple trusts
• “Simplification” of the calculation of trust rules will be implemented.
• Existing IHT exemption for members of the armed forces whose death is caused or hastened by injury while on active service is extended to members of the emergency services and humanitarian aid workers responding to emergency circumstances. This will have effect for deaths on or after 19 March 2014.From 3 December 2014 it will apply to all decorations and medals awarded to the armed services or emergency services personnel, and to awards made by the Crown for achievements and service in public life.

Avoidance, Evasion et al

Once again there were numerous announcements in this area. In addition to support for the OECD and the BEPS process, there was a major announcement of a new ‘diverted profits tax’. This follows on from the Chancellor’s announcement in September of a tax to tackle such behaviour. This looks like a bold move, and though details are currently scant the tax will impose a 25% tax charge on multinationals on profits diverted overseas to avoid UK tax. The charge will be introduced from 1 April 2015.

Some further announcements of note were as follows:

• Legislation to counter the avoidance of income tax through miscellaneous loss relief by introducing anti-avoidance rules from 3 December 2014. From 6 April 2015 it will also limit the miscellaneous income against which a miscellaneous loss can be claimed (Finance Bill 2015).
• Following consultation, the government will introduce legislation on enhanced civil penalties for offshore tax evasion. This will amend the existing offshore penalties regime to include IHT and apply to domestic offences where the proceeds of non-compliance are hidden offshore.
• An update will be undertaken to the territory classification system to reflect the jurisdictions that adopt the new global standard of automatic tax information exchange.
• A new aggravated penalty of up to a further 50% for moving hidden funds to circumvent international tax transparency agreements will be introduced.
• HMRC will review its existing framework for offering financial incentives for information on offshore tax evaders, in particular those who remain outside the reach of international efforts to achieve tax transparency.
• The legislation on ‘high risk’ promoters of tax avoidance schemes will be reviewed. The changes will include a broader range of connected persons under the common control of a promoter in the regime and will also clarify the time limits within which HMRC can issue conduct notices to promoters who fail to disclose a scheme.
• In the area of serial avoiders, the government will consult on action that could be taken to impose additional financial costs, compliance and reporting requirements on repeat users of known avoidance schemes. Views will be sought on whether publishing the names of individuals who have engaged in multiple tax avoidance schemes could contribute to deterrence in this area.
• Penalties for General Anti-Abuse Rule cases will be consulted on.
• HMRC will publish summary information about tax avoidance promoters and schemes that are notified under the regime.
• Further changes will be made to the Disclosure of Tax Avoidance Schemes (DOTAS) regime which will include updating existing scheme hallmarks, adding new hallmarks, and removing ‘grandfathering’ provisions for the future use of schemes that were excluded by those provisions.
• A new HMRC taskforce will be established to administer and enforce the DOTAS regime.

Miscellaneous Measures

There were also some interesting peripheral matters buried deep in the depths of the announcements.

• Consultation on a proposal to introduce a new power, enabling HMRC to achieve early resolution and closure of one or more aspects of a tax enquiry whilst leaving other aspects open.
• Following a consultation to which Chartered Accountants Ireland responded, the government will implement a package of changes to the Construction Industry Scheme.
• As announced at Budget 2014 the government will simplify the administration of employee benefits and expenses. From April 2015 a statutory exemption for trivial benefits in kind costing less than £50 will be introduced. From April 2016, the £8,500 threshold below which employees do not pay Income Tax on certain benefits in kind will be removed and replaced with new exemptions for carers and for ministers of religion. The legislation will also exempt certain reimbursed expenses and introduce a statutory framework for voluntary payrolling. The new exemption for reimbursed expenses will not be available if used in conjunction with salary sacrifice.
• Following consultation launched after Budget 2014, the government has decided not to proceed with changes to the taxation of employee shares that would have introduced a ‘marketable security’ nor will it proceed with a new employee shareholding vehicle.
• From 1 April 2015, businesses will be required to account for VAT on the actual consideration received when prompt payment discounts are offered. HMRC is due publish a response to the consultation.
• A new digital process for investors and companies qualifying for the tax-advantaged venture capital schemes (EIS, Seed EIS and SITR) in 2016. A new format for returns will also be developed.
• The government will seek EU approval to increase the investment limit for SITR to £5 million per annum per organisation up to a maximum of £15 million per organisation and to extend the relief to small-scale community farms and horticultural activities. The changes will come into effect on or after 6 April 2015, subject to state aids clearance.
• Air passenger duty for children flying economy will be exempted for under-12s from 1 May 2015 and for under-16s from 1 March 2016.

Readers should note that Finance Bill 2014 draft clauses were not available at the time of writing. These were due to be published on 10 December together with a range of consultations, the aforementioned should therefore be considered in light of the draft clauses.

The full complement of documents on the Autumn Statement is available for digestion by tax enthusiasts at https://www.gov.uk/government/topical-events/autumn-statement-2014

Corporation Tax Devolution

It would be remiss of this author not to mention further the announcement on the devolution of corporation tax to NI. The process of devolving Corporation Tax powers to Stormont has come a very long way. What had been merely an aspiration for many political and business interest groups is now a real possibility. Chartered Accountants Ireland was to the fore in promoting the idea. Our campaign was led by Eamonn Donaghy FCA as then Chair of the Northern Ireland Tax Committee.

Now that the devolution of the Corporation Tax Rate to Northern Ireland is politically feasible, there are many who are claiming credit for its genesis. In reality, very few others have a track record to compare with the track record of the Institute in promoting the idea. One thing is for sure, corporation tax devolution is not an accident.

Leontia Doran is UK Taxation Specialist for Chartered Accountants Ireland.

Tel: +353 1 6377200

E: leontia.doran@charteredaccountants.ie